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Opening up shop in Cuba: OFAC and BIS continue to expand incrementally authorized US trade with Cuba

On September 18, 2015 the Commerce Department’s Bureau of Industry & Security (“BIS”) and the Treasury Department’s Office of Foreign Assets Control (“OFAC”) released amendments to the Export Administration Regulations (EAR) and the Cuban Assets Control Regulations (“CACRs”) to further implement President Obama’s new Cuba policy to ease sanctions. These regulations took effect on September 21, when they were published in the Federal Register. A summary of the prior BIS and OFAC Cuba regulations that came into effect on January 16, 2015 can be found here.

For the most part, BIS and OFAC have simply continued to chip away at the edges of the embargo, in some cases making plain to financial institutions that yes, they do have the authority to conduct certain authorized transactions. However, while these new regulations are small steps, BIS and OFAC continue in the direction of opening trade by –

Providing US persons a general license to open actual offices in Cuba under certain limited circumstances;

Providing general license and license exception to allow vessels to carry authorized passenger and cargo to and from Cuba;

Continuing to enlarge licenses relating to telecommunications and software;

Clarifying that, like other embargo regimes, transactions ordinarily incident to authorized transactions are also authorized;

A general license now authorizes the provision of air ambulance and other related emergency medical services to travelers in Cuba. OFAC previously authorized such services on a case-by-case basis under a favorable licensing policy.

In addition, a general license now authorizes the provision of nonscheduled emergency medical services to Cuban nationals in the United States.

Civil Aviation Safety

Commerce has a new policy of case-by-case review for the license applications for exports and reexports to Cuba of the following items: aircraft parts and components; software and technology related to safety of flight; air traffic control, aviation communications, and aviation weather related equipment; airport safety equipment; and devices used for security screening of passengers and baggage.

Commercial and Financial Transactions

U.S. companies and individuals are authorized to provide goods and services to Cuban nationals located outside Cuba, provided there is no commercial exportation of goods or services to or from Cuba.

U.S. banking institutions may open, maintain, and close bank accounts for Cuban nationals located outside Cuba.

Deemed Exports and Reexports – EAR99 no longer an issue

Overturning a longstanding rule that applied exclusively to Cuba, the BIS regulations provide that a license is not required to release EAR99 technology or source code to Cuban nationals living in the US or a third country. Actual exports of EAR99 technology or source code to Cuba, unless authorized by a license exception, continue to require a license.

“Ordinarily Incident” Transactions

OFAC’s new interpretive guidance clarifies that with certain exceptions, transactions ordinarily incident to a licensed transaction and necessary to give effect thereto are authorized under a general license. Not authorized as “ordinarily incident” are transactions with prohibited officials of the Government of Cuba, prohibited members of the Cuban Communist Party, transactions involving debits to blocked accounts, and transactions involving confiscated property.

OFAC provides two examples of what it means by “ordinarily incident.” For example where a general license authorizes a person to import certain goods from independent Cuban entrepreneurs, funds transfers and payments for those imports are “ordinarily incident” and authorized, including payments made using online payment platforms.

Educational Activities

OFAC has established a general license for transactions relating to educational activities that are authorized in other sanctions programs administered by OFAC, including travel-related transactions. U.S. companies will now be authorized to provide standardized testing services and internet-based courses to Cuban nationals. In addition, U.S. and Cuban universities may now engage in academic exchanges and joint non-commercial academic research.

Gift Imports

A general license authorizes the importation into the United States of merchandise from Cuba or Cuban-origin merchandise from a third country intended as gifts, provided that:

The value of the merchandise is not more than $100;

The merchandise is of a type and in quantities normally given as gifts between individuals;

The merchandise is sent and not carried by a traveler (including as accompanied or unaccompanied baggage); and

The merchandise is not alcohol or tobacco products.

Humanitarian Projects

The general license authorizing certain humanitarian projects has been expanded to include disaster relief and historical preservation.

Legal Services

OFAC is expanding its existing general license authorizing the provision of certain legal services to Cuba and Cuban nationals to allow the receipt of payment for such services. U.S. persons who receive such payments must submit annual reports to OFAC. Certain limitations apply, including the requirement of a specific license for the receipt of payment from a prohibited official of the Government of Cuba or a prohibited member of the Cuban Communist Party.

A new general license authorizes persons subject to U.S. jurisdiction to receive, and make payment for, legal services from Cuba or Cuban nationals on the requirements of and compliance with Cuban laws, if the advice relates to a transaction authorized by or exempt from the CACRs.

A specific license is still required for all other provision of legal services to Cuba or a Cuban national.

Physical Presence and Operations in Cuba

A general license authorizes U.S. companies and individuals operating in certain business sectors to conduct all transactions necessary to establish and maintain a physical presence in Cuba, such as an office, retail outlet, or warehouse, including: leasing physical properties and securing related goods and services; marketing related to physical presence; employment of Cuban nationals in Cuba; and employment of U.S. persons. U.S. persons who are so employed are authorized to engage in all transactions necessary to establish domicile in Cuba, including accessing U.S. assets, for the duration of their employment.

The business sectors include:

News bureaus whose primary purpose is the gathering and dissemination of news to the general public. A specific license may be issued to Cuban organizations to establish and operate news bureaus in the U.S.;

Exporters of goods authorized for export or reexport to Cuba by Commerce and OFAC;

Authorized entities providing mail or parcel transmission services or providing cargo transportation services in connection with trade involving Cuba authorized by or exempt from the prohibitions of this part;

Authorized providers of travel and carrier services [note that lodging services are specifically excluded]; and

Authorized providers of certain internet-based services.

BIS has expanded its Support for the Cuban People (“SCP”) license exception, discussed below in more detail, to permit certain exports to establish, maintain and operate such a physical presence in Cuba.

Remittances

OFAC has removed the limitations on remittances to the following groups of people:

Donative remittances to Cuban nationals who are not prohibited officials of the Government of Cuba or prohibited members of the Cuban Communist Party, provided that the remittances are not made for emigration-related purposes (addressed elsewhere) and the remitter (if an individual) is 18 years of age or older;

Certain authorized remittances that authorized travelers may carry to Cuba; and

The amount of remittances that a Cuban national permanently resident in Cuba who is departing the United States may carry to Cuba.

Two new general licenses authorize the following actions related to unblocking of certain previously blocked remittances and funds transfers:

The unblocking and return of previously blocked remittances and funds transfers exceeding the revised $2,000 per quarter limit on authorized periodic remittances to non-family members.

The unblocking and return of previously blocked funds transfers that could have been rejected or processed, including: certain wire transfers; official business of the U.S. government, foreign governments, and certain intergovernmental organizations; or funds transfers for third-country official missions and certain intergovernmental organizations, if those transfers could be rejected or processed under current regulations.

U.S. companies or individuals who unblock funds transfers under these new general licenses must provide a report to OFAC within 10 business days from the date such funds transfers are released.

OFAC is now authorizing depository institutions to maintain accounts for a Cuban-national account holder while the account holder is located outside the United States, provided that the account holder may only access the account while lawfully present in the United States. Previously, depository institutions were only authorized to open and maintain accounts for Cuban nationals while they were in the United States, and were required to block accounts not closed prior to the Cuban national’s departure from the United States.

A new general license authorizes remittances from Cuba or from certain Cuban nationals located in third countries to the United States, and authorizes banking institutions, including U.S.-registered brokers and dealers in securities and U.S.-registered money transmitters, to provide services in connection with such remittances.

OFAC is expanding a general license to authorize the unblocking of, and remittances related to, estates in which a Cuban national has an interest.

Support for the Cuban People License Exception: Exports to Establish Physical Presence in Cuba

Commerce has expanded the Support for the Cuban People (“SCP”) license exception to authorize the export and reexport to Cuba of certain items for use by United States Persons (as defined in § 772.1 of the Export Administration Regulations, or “EAR”) to establish, maintain, or operate a physical presence in Cuba. Eligible end-users of these items include persons or entities:

That are religious organizations engaging in religious activities in Cuba;

Providing travel services or carrier services;

Providing telecommunications or internet-based services; or

Establishing telecommunications facilities.

Commerce is removing the requirement that items must be sold or donated when exported or reexported to authorized end-users in Cuba under the SCP license exception.

Support for the Cuban People License Exception: Temporary Exports for Trade Shows & Other

Commerce has expanded the SCP license exception to authorize certain temporary (not to exceed one year) exports and reexports to Cuba of items for use in scientific, archeological, cultural, ecological, educational, historic preservation, or sporting activities, or in the traveler's professional research. The items include tools of trade – commodities, software and technology, kits of replacement parts or components, and commodities and software for exhibition and demonstration. Commodities and software for exhibition must be exported temporarily only to trade shows, or to entities who would be eligible to receive the items under the other provisions of the SCP license exception.

In addition, such items must remain under the traveler’s effective control, which the EAR defines as “retain[ing] physical possession of the item, or secur[ing] the item in such an environment as a hotel safe, a bonded warehouse, or a locked or guarded exhibition facility.”

Eligible items continue to be those subject to the EAR but not specified on the Commerce Control List (“CCL”), i.e. EAR99 items, and items controlled on the CCL only for anti-terrorism (AT) reasons.

Support for the Cuban People License Exception: Exports to Develop Software to Improve the Free Flow of Communications

License Exception SCP will authorize the export or reexport of commodities and software to individuals and private sector entities in Cuba that will be used to develop software that will improve the free flow of information or that will support certain private sector activities. The Cuban Government, Cuban Communist Party, and certain officials thereof are ineligible end-users. Eligible items continue to be those that are specified in EAR99 or controlled on the CCL only for AT reasons.

Supporting Diplomatic Relations

An OFAC general license now authorizes international funds transfers on behalf of official missions of the Government of Cuba in the United States.

Telecommunications & Internet-Based Services

U.S. companies and individuals may establish a business presence in Cuba, including through subsidiaries or joint ventures with Cuban entities or individuals, to provide authorized telecommunications and internet-based services. U.S. companies and individuals may also to enter into licensing agreements related to such authorized services and market these services.

OFAC has authorized the import of Cuban-origin mobile applications, as well as allowing U.S. companies to hire Cubans to develop them.

Commerce is removing the requirement that items must be sold or donated when exported or reexported to authorized end-users in Cuba under the Consumer Communications Devices (“CCD”) license exception.

OFAC is expanding the services permitted under Commerce’s CCD license exception to include services related to additional types of items authorized by Commerce, and is adding an authorization for training related to the installation, repair, or replacement of such items.

Travel, Including a New General License/Exception for Vessels

An OFAC general license now covers the transportation by vessel of authorized travelers between the United States and Cuba only and without stops in third countries. The general license will also authorize certain related lodging services aboard vessels used for such travel provided the persons on board (if US persons) meet one of the 12 general travel licenses or fall into certain other Cuban and enumerated categories.

A new paragraph was added to BIS License Exception Aircraft, Vessels, and Spacecraft (“AVS”), which will:

Passenger vessels for hire for use in the transportation of passengers and/or items; and

Recreational vessels that are used in connection with travel authorized by the Treasury.

Authorize aircraft on temporary sojourn to remain in Cuba for up to 7 consecutive days and authorize vessels on temporary sojourn to remain in Cuba for up to 14 consecutive days.

Persons sharing a common dwelling as a family will be allowed to visit or accompany authorized travelers for certain additional activities.

OFAC will now permit families who share the same dwelling to visit a close relative located in Cuba or accompany authorized family member travelers who are visiting Cuba for official government business, journalistic activity, professional research, educational activities, religious activities, humanitarian projects, or activities of private foundations or research or educational institutes.

Although there is now no need to obtain a specific license, the new rules still do not authorize tourist travel to Cuba.

In addition, all authorized travelers will now be allowed to open and maintain bank accounts in Cuba in order to access funds while located in Cuba for authorized transactions, and to close such accounts.

The new regulations are complex so the above summaries are for general information purposes and are not intended to be and should not be taken as legal advice.

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